The president has criticized Federal Reserve policy for undermining his attempts to build the economy. The best way to make the central bank serve the needs of the economy is to make it a public utility.

For nearly half a century, presidents have refrained from criticizing the “independent” Federal Reserve; but that was before Donald Trump. In response to a question about Fed interest rate policy in a CNBC interview on July 19, 2018, he shocked commentators by stating, “I’m not thrilled. Because we go up and every time you go up they want to raise rates again. . . . I am not happy about it. . . . I don’t like all of this work that we’re putting into the economy and then I see rates going up.” He acknowledged the central bank’s independence, but the point was made: the Fed was hurting the economy with its “Quantitative Tightening” policies and needed to watch its step.

In commentary on CNBC.com, Richard Bove contended that the president was positioning himself to take control of the Federal Reserve. Bove said Trump will do it “both because he can and because his broader policies argue that he should do so. . . . By raising interest rates and stopping the growth in the money supply [the Fed] stands in the way of further growth in the American economy.”

Bove noted that in the second quarter of 2018, the growth in the money supply (M2) was zero. Why? He blamed “the tightest monetary policy since Paul Volcker, whose policies in the mid-1980s led to back-to-back recessions.” The Fed has raised interest rates seven times, with five more scheduled, while it is shrinking its balance sheet by $40 billion per month, soon to be $50 billion per month.

How could the president take control? Bove explained:

The Board of Governors of the Federal Reserve is required to have seven members. It has three. Two of the current governors were put into their position by President Trump. Two more have been nominated by the president and are awaiting confirmation by the Senate. After these two are put on the Fed’s board, the president will then nominate two more to follow them. In essence, it is possible that six of the seven Board members will be put in place by Trump.

Those seven, along with five federal district bank presidents, compose the Federal Open Market Committee, which sets monetary policy; and one of those district bank presidents, Minnesota Fed head Neel Kashkari, is already arguing against further rate increases. Bove concluded:

The president can and will take control of the Fed. It may be recalled when the law was written creating the Federal Reserve the secretary of the Treasury was designated as the head of the Federal Reserve. We are going to return to that era.

Returning the Fed to Treasury control, however, means more than appointing new Board members. It means “nationalizing” the central bank, making it a public utility responsive to the needs of the public and the economy. And that means modifying the Federal Reserve Act to change the Fed’s mandate and tools.

The Controversial History of Central Bank Independence

Ever since the 1970s, the Fed and other central banks have insisted on their independence from political control. But according to Timothy Canova, Professor of Law and Public Finance at Nova Southeastern University, independence has really come to mean a central bank that has been captured by very large banking interests. It might be independent of oversight by politicians, but it is not a neutral arbiter. This has not always been the case. During the period coming out of the Great Depression, says Canova, the Fed as a practical matter was not independent but took its marching orders from the White House and the Treasury; and that period was the most successful in American economic history.

According to Bernard Lietaer, a former Belgian central banker who has written extensively on monetary innovation, the real job of central bankers today is to serve the banking system by keeping the debt machine going. He writes:

[W]e can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. The scarcity is in our national currencies. In fact, the job of central banks is to create and maintain that currency scarcity. The direct consequence is that we have to fight with each other in order to survive.

The rationale for central bank independence dates back to a bout in the 1970s of “stagflation” – rapidly rising prices along with stagnant productivity. The inflation surges were blamed on political pressure put on Fed Chairman Arthur Burns by the Nixon administration to follow easy-money policies. But the link between easy-money policies and inflation is not at all clear. The Japanese have had near-zero interest rates for two decades and cannot generate price inflation although they are trying to. An alternative explanation for the rising prices of the 1970s is that producers’ costs had gone up, largely from increased labor costs due to the strong bargaining power of unions and the skyrocketing cost of oil from an engineered 1973-74 oil crisis.

Fed policy nevertheless remains stuck on the “Quantity Theory of Money,” which says that increasing the money in the system will decrease the value of the currency, driving up prices. The theory omits the supply factor. As long as workers and materials are available, increasing “demand” (money) can generate the supply needed to meet that demand. Supply and demand increase together and prices remain stable. And while the speculative economy may be awash in money, today the local productive economy is suffering from a lack of demand. Consumers are short of funds and heavily in debt. Moreover, plenty of workers are available to generate the supply needed to meet any new demand (injection of money). According to John Williams at ShadowStats.com, the real unemployment figure as of April 2018, including long-term discouraged workers who were defined out of official existence in 1994, was 21.5 percent. Beyond that is the expanding labor potential of robots and computers. A vast workforce is thus available to fill the gap between supply and demand, allowing new money to be added to the productive economy.

But the Fed insists on “sterilizing” every purported effort to stimulate demand, by making sure the new money never gets into the real economy. The money produced through quantitative easing remains trapped on bank balance sheets, where the Fed pays interest on excess reserves, killing any incentive for the banks to lend even to other banks; and the central bank has now begun systematically returning even that money to its own balance sheet.

The High Price of Challenging the Fed

An article in The Economist on July 28, 2018, contends that Nixon was pressuring the Fed to make the economy look good for political purposes, and that Trump is following suit. But there is more to the Nixon story. In a 2010 book titled The American Caliphate, R. Duane Willing says the Nixon White House had quietly drafted and sponsored a Federal Charter Bill that would have changed U.S. financial history. Willing worked for the Federal Home Loan Bank Board during the Nixon era and was tasked with defining the system requirements that would make a central computerized checking account and loan system available to the new banking system. He writes:

Only John Kennedy and Abraham Lincoln and two other assassinated presidents, James Garfield and William McKinley, prior to Nixon, had actively contemplated changes of such magnitude in the U.S. financial system.

President Garfield observed that “whoever controls the volume of money in our country is absolute master of all industry and commerce . . . and when you realize that the entire money system is very easily controlled, one way or another by a few powerful men, you will not have to be told how periods of inflation and depression originate.”

. . . The hidden secret since the beginning of modern capitalism is that money is created and managed by bank control over checking accounts in the loan-making process.

Willing says Nixon was preparing the Federal Home Loan Bank Board to change the traditional role of American savings and loan associations, giving them money creation powers like the big Wall Street banks had, providing a full-service nationwide banking system. The national money supply would thus be regulated according to needs at the local level rather than dictated from the top by the central bank. The proposed legislation provided for a separate central bank to backstop local credit unions and a much greater degree of competition for a wide array of financial services.

But Nixon’s plan for national finance, along with his plan for healthcare and a guaranteed income, alarmed the Wall Street/Federal Reserve power block, which Willing says was about to be challenged like never before. Nixon was obviously not blameless in the Watergate scandal, but Willing contends it was pushed by “the Wall Street Great Merchants as owners of the Senate,” who “were making certain that the money dreams of ‘Tricky Dick’ and his vision for the Republic protected with a network of converted Savings and Loan associations was doomed.”

An “Independent” Central Bank or a Public Central Bank?

Challenging the Fed is thus risky business, and the president should be given credit for taking it on. But if he is planning to change the makeup of the Federal Reserve Board, he needs to appoint people who understand that the way to jumpstart the economy is to inject new money directly into it, not keep the money “sterilized” in fake injections that trap it on bank balance sheets until it can be reeled back in by the central bank. Interesting proposals for how the Fed could inject new money into the economy include making direct loans for infrastructure (as the Chinese central bank is doing), making low- or no-interest loans to state and local governments for infrastructure, or refinancing the federal debt interest-free.

Better than changing who is at the helm of the central bank would be to change the rules governing it, something only Congress can do. Putting the needs of the American people first, as Trump promised in his campaign speeches, means making the Fed serve Main Street rather than Wall Street.

35 Responses

“The president has criticized Federal Reserve policy for undermining his attempts to build the economy. To best make the central bank serve the needs of the economy, it needs to be transformed into a public utility.”

This is a total misconception of the role of the bank. It is not subject to the exclusive needs of the economy by providing stimulus and quite frankly. I’m glad. It leaves room for competitive asset based currency that can utilize the global price model that the central banks of the world have created. We now use it to make direct asset-to-asset price comparisons for trades that amount to barter , in spirit

Debt-free trades that feature market gold, market pricing and market balancing would not even be possible for gold if the price of gold had not been set free as it was in 1971. A fixed price is an abomination of market law.

The Fed’s message is that we don’t need them for currency, simply for pricing of our own sovereign asset based market currency. We should give thanks. Free market capitalism is a full team event and that power should remain decentralized.

Yes, as economist James Galbraith has written, left to themselves markets are criminogenic. I disagree, however, with the idea that capitalism is fine, you just need to tweak it a little to keep it honest. It has fundamental problems. As Keynes said, “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” As Ellen Brown writes, banking should be a public utility because the banks create money for themselves. The armaments industry should obviously be nationalized: it is the reason we have constant war. Russia produces better military equipment than the U.S on, what, 1/10th the budget.I believe in a mixed economy, predominantly socialized. China has shown the world in the past 40 years that this works better.

the FEDs since 1913 and all .Private banks have the exclusive priviledge to create money …called FRACTIONAL RESERVE BANKING … while any other business, government or person can only lend out money to the extent of their saving reserves… called FULL RESERVE BANKING …. why only banks have this priviledge..??? …The solution would be SO simple >>A>> NATIONALIZE THE MONEY CREATION PROCESS ..as a collective RIGHT like the roads, the rivers and the air. WITHOUT NATIONALIZING THE BANKS THEMSELVES <<<>B>>> LICENSE THE USE OF THE MONEY CREATION PROCESS RIGHT BACK TO THE BANKS FOR FOR A COMMISSION …. 20% to the banks 80% to the governments ….GOOD BYE INCOME TAX SYSTEM FOR THE PEOPLE …. HELLO TO NEW MONEY for social programs, developments …. http://www.capitallessism.com
I guess Trump might have read my book….

The number and make-up of governors doesn’t square with this quote:
“A Federal Reserve bank is a privately owned corporation established pursuant to the Federal Reserve Act to serve the public interest; it is governed by a board of nine directors, six of whom are elected by the member banks and three of whom are appointed by the Board of Governors of the Federal Reserve System.Jul 19, 2018
Federal Reserve System | Definition, Functions, & Facts | Britannica.comhttps://www.britannica.com/topic/Federal-Reserve-System

During WWII the government essentially took over the Fed and controlled the monetary system. That was done via the RFC, a national bank created in the Hoover era and finally closed by Eisenhower in the 5os. The SBA, Fannie Mae and Import/Export are the remaining relics of the RFC. The same thing could be done again with a national bank. China currently has four such banks.

Creation of the Federal Reserve System in 1913 immediately made available vast sums, as never seen before, which funded 20th century warfare for decimation of the formerly white west. From the start, its near infinite lines of credit have too often been so misused.

Getting the political apparatus to understand that making central banking a public utility is an essential goal, that could be supported across the political spectrum, is something that a wide common front of civil society groups have to start building real solidarity to advance. Trump has made more statements that are supportive of a common sense, equitable foundation for trade policy, than Bush 2 or Obama ever made, so I see him as a potential ally in this cause.

It will be important for groups that are interested in reinvigorating a healthy grass roots civil society, that can advance this public utility goal, to begin to work together. I see the critical mass being achievable if we are able to bring together all groups over the whole continent, that want to see a coherent industrial strategy developed, that will enable fair trade foundations to become something tangible. Every community could join in helping this to take shape, and we work on creating unity on this. Canada is at a disadvantage, because neoliberal market control is still taken as a given by our federal cabinet. We have to bring this matter down to the community level, where everyone can take a role in building an action plan.

So the central bank can be made to serve the general interest of the Republic rather than just banking interests. You say Nixon was heading in this direction and Trump wants to? How many presidents thinking like this got assassinated?

I think that the Fed’s independence is a very good thing in the ability to manage the health of a monetary system is a separate task from managing an economy. The economy is about jobs, wages, resource utilization, standard of living and more. The monetary system is about money supply, banking reserves, debt limits, interest rates, monetary strength, and more. I agree that there needs to be a LOT more TRANSPARENCY of the system in regards to their actual inner workings, policies and decisions, but turning it into a political body would do nothing more than continual more money supply and passing the problems down the road.

There is also the situation of the $20T+ as from Catherine Austin Fittts of missing money pulled out of the system that could do a big job of wiping out our consumer debt, and large portion of public debt. As important as this is, it is a major side issue as it is not a functional part of our monetary system but has been a huge drain on our economics and so to bring this money back into the system will be a very good thing.

I think that the major topic here is public disclosure of all operations, accounts and management, but some level of independence for its ability to actually run a monetary system independent of the politically oriented economy. I see that this would start as a full and publically disclosed audit of all its activities for at least the last 20 years and possibly back as far as the days of Nixon. I also see that we need it to force some level of disclosure and limits on derivative trading and the difference between speculative and productive money within the economy. Finally I think that we should have some sort of more publicly disclosed understanding of its hidden rationale for what its monetary policy actually consists of, do we really need a continually expanding money supply?, If we had an asset backed currency, gold or crypto, and a debt level of below 50% of GDP, limited derivatives, and limited black project siphoning, wouldn’t a stable money supply work just fine?

The final thing is to have a true model of the financial system and economy that includes everything in a picture that is relatively easy to understand.

This all might be a big wish list and idealistic pipe dream, but is just my sense on what would be really needed without knowing all the operational details of how the system really works.

How the system really works is important and very interesting. One rather easy aspect of how the system works involves the national debt. Employing a gedanken experiment consider how the system would work if there were no central bank. This concept is not irrational. In colonial times the colonies actually created paper currency and spent it into the economy. They also took back a portion as taxes. If we hand this issue to bookkeepers then they will conclude that as the government spends then takes back some in taxes the amount of money in the economy is exactly equal to the national debt. It is an easy process to understand.

Now, looking at actual data from 1934 when fiat money was introduced by FDR we find a different result from government spending, taxing and building up of a national debt. I discovered this accidently. I plotted national debt v years, 1934 to 2015 and I also plotted commercial bank total assets v years for the same period.Both are generally exponential and seemed to follow each other. I plotted the two together and they definitely follow each other, the average mean ratio of national debt to total commercial bank assets being just under unity. The greatest departure is during the WWII years when the national bank, the RFC, was in operation.

Hence, a central bank routes government debt into commercial bank assets instead of placing it into the economy as interest free money.

The “Original Lie” is “Congress may only COIN money”. “Quoins” are wedges used in printing paper on a printing press.

“Quoin” may be spelled in the alternative: “Coignes”, “Coins”.

The notion a “hard specie (gold, silver, peanut-butter-and-jelly samitches), must underpin Currency is absurd in the ABSENCE OF THE RULE OF LAW… What difference the underpinning if the foundation is COUNTERFEIT????

The Constitution, specifically, Article One, Section Eight, paragraph six (186) explains, clearly: “The Congress shall have the power … To provide for punishment of counterfeiting the securities and current coin of the United States…”.

Presently, in excess of 1200 Trillion intentionally mislabeled, “Federal Reserve Notes”- bonds and bills that support them- are COUNTERFEIT in service to international “Mortgage-Backed Securities” clearinghouse fraud.

The 1200 Trillions are zero-sum-game insider trades on fraudulent “Naked Short Sale”, “Derivatives” (see FTPA, 1993; CMFA 2000); ultimately, after entrance into CDO, thereafter CDS as leveraged bets American homes will be “successfully foreclosed”… a leveraged futures’ bet call on margin based on international “Securities Fraud”.

The same imposters in the intentionally mislabeled “Fed”, also own the “Securitization Clearinghouses”; “Depository Trust Company, here, in the US- “Euroclear” as but one example, in Europe.

Derivatives are beyond any regulatory ability to quantify or qualify because the international criminal central bankers are using “False Securitization” of MBS to launder terror and drug money.

President Trump will become immortal as he already understands this narrative. Vice President, VP Putin is his kin. Neither have any respect for the European Central Banking Farce and the American People may gain insight through the 2012 Brooklyn “Deferred Prosecution Agreement”.

The appointment of Jerome Powell as Fed chairman suggests that Trump, like his predecessors, intends to maintain the status quo.

The Fed is dominated by Rockefeller CFR and its sponsors including Citigroup, JPMorgan, and Goldman Sachs. Several of their execs are CFR members (Blankfein, Dimon, Rubin, etc).

Since WW2, most of the Fed Chairmen have been CFR members including Powell, Yellen, Greenspan, Volcker, Miller, Burns, Martin, and McCabe. Recent Fed governors Fischer, Tarullo, and Brainard are also CFR members.

Likewise, most of the Presidents of the flagship New York Fed have been CFR members including Dudley, Geithner, McDonough, Corrigan, Solomon, Volcker, Hayes, and Sproul. Current NY Fed Directors Gorman, Hutchins, Cote, and Rafferty are CFR members.

Current NY Fed president, John Williams, attended the Rockefeller-sponsored London School of Economics and succeeded Yellen as president of the San Francisco Fed. Yellen was a professor at LSE.

The CFR and its many interlocking affiliates comprise the “deep state”. In addition to controlling the Fed, members of this network have dominated the top slots in the departments of State, Treasury, Defense and CIA. See lists in the CFR annual report.

The FED has not guarded the financial system. Instead it created sudden crashes, as in 1929, and fortunes for the owners of the FED. No, it is a money Ponzi scheme, a money monopoly, Khazarian bankers who had Wilson blackmailed. Jackson had “routed them out” but back they came. The FED law was passed on Christmas eve, while nobody was paying attention… See the Secret of the Federal Reserve by Eustace Mullins, the only book ever banned in post-war Germany. Kennedy issues Executive Order Executive Order No. 11110 to return the power to create currency to the government, without going through the Federal Reserve. he was assassinated just five months later. The FED owners have abused their monopoly long enough. Trump, please do your job, and restore our country by nationalizing the FED. THis will collapse the deep state and really restore our economy

To take on the Fed people need to understand the issue more explicitly. Some of the Fed’s functions are needed and necessary in any monetary system; for example the clearing house functions. There are two major issues, one is gigantic and the other only huge. The gigantic problem is with commercial banks. Banking is a privately owned business like any other business but it is supported directly by the Federal govt via the Fed, unlike any other business. banks are commonly described as being “creators of money” but they do not have that power. banks rent credit for a specified time period, a process that actually sweeps money from the economy rather than placing money into the economy. The crashes of 1929 and 2008 can be shown mathematically to be the result of this aspect of commercial banking. How should this problem be fixed? The link between commercial banks and the federal govt via the Fed should be broken and banks should be operated and regulated like any other business. The federal govt via the Fed, should not function as a lender of last resort to prop up a failing bank. If a bank fails by extending credit it can not support, ie fractional reserve banking, then let it fail. The public at large would still need a safe place to store their money and that should be supplied via a national bank with an outlet at every post office.

The other issue is the Fed’s management of the money supply. They do this with interest rates, a weak tool, and via buying and selling the national debt, a stronger tool. It has been stated that a central bank such as the Fed cannot exist without a national debt. The obverse is also true. Without a central bank a national debt is unnecessary. If the national debt were paid off by not selling any more bonds and commercial banks disconnected from the Fed then the Fed would cease to be a central bank and become just a clearing house.

With that done the Congress would have to shoulder the responsibility of managing the monetary system using the very natural and most powerful tools to do that; spending and taxing. Spending and taxing are the natural tools to manage the money supply, not setting overnight interest rates nor buying and selling the national debt.

The Congress could, if they wished, make these changes very effective using modern technology.

A few clarifications, ALL banks create money as the new money is created every time a loan is signed. It is not old money lent out, but new money created with the signature and then obligated to pay back to the bank with interest. This is called conversion and a federal crime, but largely unrecognized.

The second thing is that money supply is partially managed through interest rates, but mainly managed through the buying of US Treasuries to put more money into the system, QE or QT depending on whether they are buying more or buying less to expand or contract the money supply. Now they are doing both, raising interest rates and QT to tighten the M2. They also have reserve requirements which places a limit on how much banks can lend out as a function of their total assets.

This statement, “A few clarifications, ALL banks create money as the new money is created every time a loan is signed. It is not old money lent out, but new money created with the signature and then obligated to pay back to the bank with interest.” ignores the fact that when the loan is repaid the so called money in the economy disappears! The entire process of a successful loan results in money being extracted from the economy, not added to the economy. Additionally, this process explains, mathematically, the reason the money supply as defined by the Fed grows exponentially.

That is a very good point, where does the money go that is used to pay back all the loans, I suppose that it all goes straight into the banks profit line as they have no expenses in creating the loan outside of admin. This means that outside of lobbying and specific investing of other companies, there may be an entire unseen capital flow that the banks use to make use of that massive income stream that is a lot larger than can be used for facilities and salaries.

As far as the exponential growth I have always seen that the Fractional Reserve system means that in between the time of loan payout to loan payback, all banks can make their respective loans as expansion begats expansion, I think that the growth is just a function of how growth works in that ALL banks can create money from nothing, and that nothing is actually lent out, but all created anew each time.

The collected interest goes into the operating expenses and direct shareholder profits which goes back into the economy but a portion goes out of the economy into the reserve account of the bank, representing the wealth of the bank. The exponential growth of the money supply is much easier to demonstrate mathematically than it is to argue with words. From 1934 to 2015 the money supply and bank assets grew exponentially at near seven (7) percent per year according to data published by the Fed.

948. May 17, Interview on Al Jazeera, in which Ellen Brown gives her critique of President Trump’s approach to infrastructure. Part of coverage of the U.S. Chamber of Commerce’s “Infrastructure Week”. Watch it here.

947. May 13, Bring On the Power of a Public Bank for CA: People’s Forum, L.A., 3 pm. Info here. At the beautiful PUENTE Learning Center DTLA in Boyle Heights: https://www.puente.org/locations/

946. May 2, presentation, The Web of Debt and the Deep State: How do we break Free? Info here.